Impact of Environmental Law on Corporate Governance

In this article, Vartika Tiwari, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the Impact of Environmental Law on Corporate Governance.

Introduction

Industrialisation, apart from being conducive to economic development, has also created problems in the environmental realm. Thus, while the dependence of modern economies on companies can hardly be questioned, it is also an established fact that companies are responsible for damaging the environment by depleting natural resources. Consequently, the legislature has made several attempts to ensure that companies behave in a manner so that the environment does not get adversely affected.

Legislative Enactments made by the Government

The Environment (Protection) Act, 1986

The legislature enacted the Environment (Protection) Act, 1986 under Article 253 of the Constitution of India after the Bhopal gas tragedy.[1] This was done to implement the decisions that were taken in the United Nations (UN) Conference on the Human Environment, 1972 regarding protection and betterment of the environment and to suggest ways to prevent hazards to all living organisms.[2]

Purpose of this Act

  • The act is an umbrella legislation and enabling law that provides a framework for the Government to coordinate activities between central and state authorities established through various ancillary provisions.[3]
  • The act also prohibits the companies from emitting any environmental pollutants more than the standards that have been prescribed in the act.[4]
  • Consequently, the Central Government has framed the Environment (Protection) Rules of 1986 that lay down various standards that the industries are expected to follow.
  • This includes emission standards, noise standards and other such standards, such as national ambient air quality standards.
  • This act also confers powers upon State and Central Pollution Control Boards to enforce these standards.

Corporate Social Responsibility (CSR)

The environmental aspect of CSR is the duty of the corporate to cover the environmental effects of the company\’s products operations and facilities; remove waste and emissions; increase the productivity and efficiency of its resources, and decrease practices that may adversely affect the enjoyment of resources by future generations.

Voluntary Guidelines

While the Corporate Social Responsibility Voluntary Guidelines provide for guidelines for several core elements, one of these is the respect for the environment. These guidelines urge the company to prevent:

  • Pollution,
  • Recycle waste,
  • manage natural resources, and
  • Adopt environment-friendly technology

Absolute Liability

This doctrine has evolved from the case of M.C. Mehta v. Union of India[5] and according to this doctrine, industries engaged in hazardous and inherently dangerous activities do not enjoy the exceptions of strict liability rule and are to be made absolutely liable in cases of default.

Environmental Clearance

There are certain rules that have been framed in pursuance of the Environment (Protection) Act, 1986, in order to ensure environmental protection, these rules are:

Environmental Impact Assessment

Since every human activity affects the environment, it is important to synchronize the activities imperative for development with the ever increasing environmental concerns. Environmental Impact Assessment (EIA) is a tool that ensures the same. It began in India in the late 1970’s and aims to detect the environmental problems that are likely to arise out of a project that is proposed and tries to settle those problems in the initial stages itself, thereby preventing future liabilities and expensive alterations in project design.

Environment (Siting for Industrial Projects) Rules, 1999

The said rules mainly provide for precautionary measures to be taken for site selecting, areas to be avoided for siting of industries and certain environmental protection measures that need to be kept in mind while developmental projects are implemented.[6]

The Wild Life (Protection) Act, 1972

This act provides for protection of wild animals and lays down a special provision for offences committed by companies, that makes the companies vicariously liable for the offences committed by the people who are responsible for its functioning.

The Forest (Conservation) Act, 1980

These guidelines were enacted with the aim of conserving the country’s forests. It restricts and regulates deforestation without the approval of the central government and lays down the penalty for projects that have not obtained forest clearance.[7]

The Biological Diversity Act, 2002

Section 3 of the aforementioned act prohibits people from obtaining any biological resource without the approval of national biodiversity authority. Such persons include a body corporate, association or organization either not incorporated or registered in India; or incorporated or registered in India having any non-Indian participation in its share capital or management.[8]

Bio-Medical Waste (Management and Handling) Rules, 1998

These rules provide for management of biomedical waste. They “apply to all persons who generate, receive, collect, transport, store, treat, dispose, or handle bio-medical waste in any form”[9] There are provisions making it mandatory such institutions to submit an annual report[10] and lay down guidelines in case there is an accident.[11]

Chemical Accidents (Emergency Planning, Preparedness, and Response) Rules,1996

These rules have also been framed for management and handling of biomedical waste and provide for setting up of crises groups at Central[12], State[13] and District levels[14], to provide expert guidance in cases of accidents. Further, there are provisions that make it possible for the public to obtain information about potential accidents at an industrial site.

Manufacture, Storage, and Import of Hazardous Chemical Rules, 1989

According to the said rules, the occupier who has control of a said industrial activity is responsible for providing evidence showing that he has identified the major accidents and taken adequate steps to prevent such accidents and that he has provided the workers with information and training for their safety.[15]

Hazardous Wastes (Management and Handling) Rules, 1989

These rules lay down the responsibility of the occupier while handling hazardous wastes. It entails that the occupier generating hazardous wastes in quantities equal to or exceeding the given limits shall take all practical steps to ensure proper handling and disposal of such wastes without any adverse effects.[16] The said occupier is also supposed to maintain records regarding the same[17] and is obliged to report any accident that occurs in the course of events.[18]

Rules for the Manufacture, Use, Import, Export, and Storage of Hazardous Microorganisms, Genetically Engineered Organisms or Cells, 1989

These are the rules notified by the central government for the protection of the environment, nature, and health, in connection with the application of gene technology and micro-organisms.[19]

Hazardous Wastes (Management, Handling and Trans-Boundary Movement) Rules, 2008

These rules provide for immediate reporting of accidents relating to hazardous wastes and lay down the guidelines for handling hazardous wastes.

Batteries (Management and Handling) Rules, 2001

These rules were notified by the Central Government to impose responsibility upon the manufacturer, importer, assembler, re-conditioner, and recycler to create public awareness regarding the hazards of lead and the responsibility of consumers to return their used batteries only to the dealers or designated collection centres.[20]

The Water (Prevention and Control of Pollution) Act, 1974

This act prohibits entry of any poisonous, noxious or polluting matter into any stream, well, sewer or on land for disposal determined in accordance with such standards as laid down by the State Board.[21] Thereby making the companies responsible for whatever they are discharging in water bodies.

The Air (Prevention and Control of Pollution) Act, 1981

This act provides that persons operating any industrial plant, in any air pollution control area shall not discharge or cause or permit the discharge of the emission of any air pollutant exceeding the standard laid down by State Board.[22]

Self-Regulation Measures

Environmental Management System (EMS)

EMS is the “the organizational structure, responsibilities, practices, procedures, processes, and resources for determining and implementing environmental policy”.[23] This framework helps the companies in achieving environmental goals. EMS requires the organization to identify its significant aspects and their impact, and in turn, develops policies according to the legal requirements.

ISO 14004:2004 provides guidelines for maintenance, improvement, and implementation of EMS.

National Voluntary Guidelines on Social, Environmental and Economical Responsibilities of Business, 2011

The Ministry of Corporate Affairs incorporated the advices given by stakeholders and released a new set of CSR guidelines for corporations. These guidelines encourage businesses to be accountable for the environmental impacts of their operations and products and to constantly strive to make them environment-friendly.

The Companies Act, 2013

The act provides that every company having the net worth of Rs. 500 crore or more, or turnover of Rs. 1000 crore or more or a net profit of INR 5 crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board.[24] In common parlance, Corporate Social Responsibility and Corporate Environmental Responsibility mean the same thing and thus, companies are obliged to conform to certain environmental standards.

Criminal Liability of Companies

Section 47 of the Water (Prevention and Control of Pollution) Act, 1974, Section 40 of the Air (Prevention and Control of Pollution) Act, 1981 and Section 16 of The Environment (Protection) Act, 1986 provide for Criminal Liability in case of offences committed by the companies.

Case Laws

Uttar Pradesh Pollution Control Board v. Mohan Meakins Ltd.[25]

The matter was related to the discharge of trade effluents by an industrial unit in river Gomathi, and the directors of that company were accused of an offence under section 43 of the Water (Prevention and Control of Pollution) Act, 1974. The Supreme Court held that lapse of a long period of time cannot be reason enough to absolve the directors from the trial.

Mahmud Ali v. State of Bihar and anr. [26]

It was held that under Section 319 of the Cr.P.C. 1973 a criminal court can add a person against whom evidence comes forth during the trial showing his involvement in the offence, not being the accused before it and, as an accused and try him along with those that are being tried.

Haryana State Board v. Jai Bharat Woollen Finishing Works [27]

The Court held that Section 47 of the Water Act relating to offences by companies which includes a partnership firm, lays down that, where an offence under the Act is committed by any company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

Conclusion

It can be concluded that the growth of environmental law has greatly impacted corporate governance in the present day since companies are now expected to live up to the standards that have been laid down by the aforementioned legislation. The legislation have put a check on the companies and made it mandatory for them to abide by certain guidelines, which is the need of the hour, considering the importance of both – industrialisation and preservation of environment.

References

[1]https://www.thestatesman.com/features/environmental-legislation-1484784315.html

[2]Ibid.

[3]Ibid.

[4]Section 7, The Environment (Protection) Act, 1986.

[5]AIR 1987 SC 1086.

[6]S.O. 470(E), [21/0/1999] – Environment (Siting for Industrial Projects) Rules, 1999.

[7]http://envfor.nic.in/division/forest-conservation

[8]Section 3(2), ibid.

[9]Rule 2, Bio-Medical Waste (Management and Handling) Rules, 1998.

[10]Rule 10, ibid.

[11]Rule, 12, ibid.

[12]Rule 3, Chemical Accidents (Emergency Planning, Preparedness, and Response) Rules, 1996.

[13]Rule 6, ibid.

[14]Rule 8, ibid.

[15]Rule 4, Manufacture, Storage and Import of Hazardous Chemical Rules, 1989.

[16]Rule 4, Hazardous Wastes (Management and Handling) Rules, 1989.

[17]Rule 9, ibid.

[18]Rule 10, ibid.

[19]K.D. Raju, Genetically Modified Organisms: emerging law and policy in India (2007).

[20]Rule 4(viii) and Rule 8(vi), Batteries (Management and Handling) Rules, 2001.

[21]Section 24, The Water (Prevention and Control of Pollution) Act, 1974.

[22]Section 22, The Air (Prevention And Control of Pollution) Act, 1981.

[23]https://www.winchesterva.gov/sites/default/files/documents/engineering/EMS.pdf

[24]Section 135, The Companies Act, 2013

[25]https://indiankanoon.org/doc/885425/

[26]https://indiankanoon.org/doc/1439296/

[27]https://indiankanoon.org/doc/966727/

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